Hero MotoCorp expects sales to pick up in second half of FY16

NEW DELHI: Facing a demand slump on account of slowdown in motorcycle sales in rural India, country's largest two-wheeler maker Hero MotoCorp expects sales to bounce back in the second half of the ongoing fiscal.

The company plans to launch an upgraded version of its flagship Splendor Pro and two new scooters by the second half to increase sales.

The company has already kicked off a range of margin improvement projects to optimise fixed costs that have helped in adding Rs 750 crore to its bottomline.

"Overall, the company expects the first half of FY2015-16 to be challenging on account of slowing motorcycle sales in rural India," the company said in its annual report for 2014-15.

However, higher government spending in infrastructure could propel a stronger recovery in the second half, in both urban and rural India, it added.

"To shore up performance, Hero is launching an upgraded version of its flagship product called the Splendor Pro as well as two new scooters by the second half. The company expects these launches to catalyse sales," it said.

The two new scooters will be on completely new platforms developed by Hero MotoCorp on its own.

In his address to shareholders, company's Chairman, MD and CEO Pawan Munjal said: "... agricultural prospects are comparatively better, and the country is poised for viable recovery. In this fiscal itself, I anticipate a rebound in the capital goods production, which is usually the harbinger of revival in the manufacturing sector.

"Once the business cycle turns more positive - as it should, by the second half of this fiscal - I expect an uptick in demand across multiple consumer verticals."

On measures taken up by the company to enhance its profitability, he said: "The company has launched a range of margin improvement projects that aim to optimise fixed costs. Some of these projects have already started showing results, and have so far added (over) Rs 750 crore to our bottomline, and we anticipate significantly higher savings in the next five years."

According to the company, overall motorcycle sales that accounted for nearly 80 per cent of the two-wheeler industry, grew by 4.7 per cent to 13.06 million units in FY2014-15 from 12.47 million units in FY2013-14

He also said Hero's parts business is now in excess of Rs 2,000 crore (USD 313 million) and is slated to touch a turnover of USD 1 billion.

According to the company, overall motorcycle sales that accounted for nearly 80 per cent of the two-wheeler industry, grew by 4.7 per cent to 13.06 million units in FY2014-15 from 12.47 million units in FY2013-14.

Hero MotoCorp sold 66,31,826 units in FY2014-15 as against 62,45,960, a growth of 6.2 per cent.

However, in the first quarter of 2015-16, Hero MotoCorp's sales were down 4.04 per cent at 16,45,867 units compared with 17,15,254 units during the same period of previous fiscal.

On the company's plan to prepare for increased demand, Munjal said: "Hero remains bullish about the two-wheeler business, not just in India but also overseas. We are pumping in over Rs 3,000 crore (USD 470 million) in different areas to catapult your company into its next stage of growth."

In the ongoing fiscal, the company will invest Rs 1,650 crore and the rest in the next financial year, for setting up new plants in Gujarat, Colombia and Bangladesh apart from brand building initiatives.

"The plant at Halol in Gujarat will not only help support the western market more efficiently, it will help Hero reach global destinations faster, since it is within close proximity of ports," Munjal said.

The plant at Villa Rica in the state of Cauca in Colombia will help support the company's aggressive initiatives to market its products across South America, he added.

"Similarly, the production facility in Bangladesh will help us in servicing the needs of that region," he said.

While the Gujarat plant will have an installed capacity of 18 lakh units annually, the Colombia and Bangladesh plants will have 1.5 lakh units capacity each per annum.

Hero MotoCorp is also coming up with another manufacturing plant in Andhra Pradesh. At present, it has four operational plants in Haryana, Uttarakhand and Rajasthan with a total capacity of 76.5 lakh units annually.

By 2020, the company plans to have a total capacity of 12 million units annually.

"By the year 2020, we aim to surpass 100 million units in cumulative production with annual bike and scooter sales of 12 million units. We also plan to have more than 20 manufacturing and assembly plants globally with sales in more than 50 countries by that year," the company said in its annual report.